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Business Theme 2 > 2.1 - Raising Finance > Flashcards

2.1 - Raising Finance Flashcards

1
Q

What are the methods of growth?

A

Internal / organic growth

External / inorganic growth

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2
Q

What is internal growth?

A

Is where a business grows through it’s own operations

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3
Q

Examples of internal growth

A

Launching products

Expansion of locations

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4
Q

What is external growth?

A

Another business partaking in a merger or takeover with another business

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5
Q

What is a merger

A

where 2 businesses come together to become 1 new business

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6
Q

What is a takeover?

A

Where 1 business buys another business

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7
Q

Benefits and drawbacks of internal growth

A

+ More control
- Slower growth

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8
Q

Benefits and drawbacks of external growth

A

+ Much quicker (other business may have brand loyalty and strong brand identity and more operations set up)

  • Often much more expensive as you sometimes pay for the future value of the company as well.
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9
Q

What are the Internal sources of finance?

A

Owner’s capital
Retained profit
Sale of assets

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10
Q

benefits of using owner’s capital

A

No interest payments to be made on loans

Easy access

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11
Q

Negatives of using owner’s capital

A

Owner may not have enough capital
Risky as owner could lose their investment

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12
Q

Benefits of retained profit?

A

No interest payments on loans
Easy access
Owners keep control

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13
Q

Negatives of retained profits?

A

Opportunity cost of spending on other areas of the business
May be unreliable as profits may be unreliable
May decrease dividends for shareholders

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14
Q

Benefits of sale of assets?

A

No interest payments to be made on loans
Can raise cash quickly

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15
Q

Negatives of sale of assets?

A

Opportunity cost - lose the benefit of the asset

May have to spend on advertising

May include lots of bureaucracy

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16
Q

What are the external sources of finance?

A

Share capital
Bank loan
Overdraft
crowd funding

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17
Q

What is a bank loan

A

Borrowing a sum of money and paying it back with interest over time

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18
Q

What is an overdraft?

A

When you don’t have enough money in your account to cover a transaction, but the bank pays the transaction anyway.

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19
Q

What is crowdfunding?

A

Collecting money from a large group of people online

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20
Q

Benefits of crowdfunding

A

Gain finance when banks won’t lend
No interest
Easy
Boost brand awareness

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21
Q

Negatives of crowdfunding

A

May have to share profits later on

Have to pay for promotional material

22
Q

Benefits of bank loan

A

Small payments over time
Large amount of money

23
Q

Drawbacks of bank loan

A

Needs collateral
Interest payments

24
Q

Benefit of overdraft

A

Solve cash flow problems with large amount of cash

25
Q

Drawback of overdraft

A

High interest if not paid back quickly.

26
Q

Benefits of share capital

A

No repayments

27
Q

Drawbacks of share capital

A

loss of equity
May have to pay dividends

28
Q

Difference between objectives and Aims

A

Aim: Long term target
Objective: short term steps

29
Q

Why might business objectives change?

A

Responding to:
- Market conditions
- technology
- Current performance
- Legislation
- Internal reasons

30
Q

How do business objectives change?

A

Business may choose to focus on:
- Survival, then growth
- Exit and enter markets
- Growing or reducing the workforce

31
Q

Imports/exports

A

Buying from abroad / selling to abroad

32
Q

Multi-national company

A

Company operates in different nations

33
Q

Tariff

A

Tax on imports on other countries

34
Q

Quota

A

Limits on imports from certain countries

35
Q

Trade Blocs

A

Regional free trade

36
Q

Examples of ethics in business

A
  • Ethical suppliers
37
Q

What is there between ethics and profit

A

A trade off

38
Q

Benefits of ethics

A

Added value- charge higher prices

Better brand reputation

39
Q

What is a pressure group

A

An organisation that encourages change

40
Q

Impact of pressure group

A
  • Brand reputation
41
Q

What is venture captial?

A

Investment from an investor

42
Q

What is leasing?

A

Renting rather than buying

43
Q

What is trade credit?

A

Being able to pay later

44
Q

What is a grant?

A

Non-repayable sums of money from government

45
Q

What is limited liability?

A

Responsibility for debts is limited to company’s assets

46
Q

What is unlimited liability?

A

Responsibility for debts is NOT limited to company’s assets, so personal assets are at risk

(unincorporated companies)

47
Q

What is a business plan?

A

A document setting out the aims and objectives of a business and how they are going to achieve them

48
Q

What is a cash-flow forecast?

A

A forecast of cash inflows and outflows over a period of time

49
Q
A
50
Q
A

Business Theme 2 (5 decks)

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